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Friday 23.03.2018 | Name days: Mirdza, Žanete, Žanna

SEB: among Baltic States, Latvia is the most flexible against Russian sanctions

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUNext year’s GDP growth will speed up in all three Baltic States. Nevertheless, the rate will remain moderate, reaching its potential only by 2017. Private consumption growth will maintain growth in Baltic States, predicts SEB Bank economist Dainis Gaspuitis.

Development of export and capital costs will be limited because of economic decline and import restrictions in Russia. Geopolitical uncertainty will also play a part. Estonia has been slowly recovering after the recent export slow-down. Among Baltic States, it seems Latvia shows the most flexibility against Russia’s weak economy and sanctions. The Russian factor has proven larger for Lithuania than previously anticipated. Because of this, economic growth perspectives have reduced, explains the economist.

Latvia’s economy is expected to grow 2.4% this year and 2.7% next year. Estonia’s economic growth rates are expected to be 2.2% this year and 2.7% next year. Those of Lithuania are 2% for 2015 and 2.8% for 2016. It can be concluded that Latvia’s economic growth potential is good. Nevertheless, risk level is high and cautiousness in the world is not expected to go away in the near future. In fact, these factors are expected to affect trends in Latvia, says Gaspuitis.

In regard to global economy, Gaspuitis notes that global growth rates continue to spite expectations regarding increased growth rates. One of the most significant reasons is the ruling cautiousness of developed economies. Because of this reason, low interest rates, rising asset prices and more powerful purchasing power have yet to secure activation of capital costs and consumption.

Uncertainty regarding perspectives of rapidly growing economies has grown. The decline of the Chinese stock market along with changes to the country’s currency has raised concerns about the country’s economic stability. Brazil, Russia and Ukraine now face serious economic and political challenges. The slow-down of globalization processes has actualized demographic and structural problems in growing countries. Global trade growth rate, compared to the pre-crisis period, has become slower, explains the expert.

The main indexes remain unchanged. Economic growth of USA will soon increase its growth rates from 2.5% to nearly 3%. Up until now growth of the US industrial sector has been hindered by strong dollar. The country’s service and housing markets, on the other hand, are optimistic. Revenue of American households will be supported by a rise in employment and quicker rise in wages. Weak consumption and exports ruled Japan in the first half of the year.

Western European economic conditions have since stabilized. In spite of strong currently and strict fiscal policy, the UK currently experiences rapid economic growth. Eurozone has managed to overcome the Greek debt crisis. It is hard to note any remaining negative influence. Germany’s economy develops at a steady and healthy pace.

Weaker currency, more liberal crediting conditions under the policy of the European Central Bank and lower energy resource prices will help speed up economic growth in Eurozone – from 1.5% this year to more than 2% in 2016. GDP growth in USA will reach its highest point in 2016. Different factors suggest economic growth will continue expanding, which is something demonstrated by potential of cyclic industries. Eurozone’s unemployment level remains high; future recovery is expected to be slow, Gaspuitis predicts.

Slow-down of China’s economy will be carried out gradually and in a controlled manner. The recent export decline may mean certain competition problems. China’s exports largely depend on changes in international demand, not so much on currency exchange rate. This means the recent devaluation of the Chinese yuan is more of a step toward financial market liberalization. The recent slow-down is mainly driven by a weak housing market and decline of capital costs. Nevertheless, there have been signs of stabilization in these areas. Beijing now has monetary and fiscal tools to stabilize the situation. The process will not be smooth. Assessment of the country’s economic situation is weakened by stock market decline and re-orientation of the central bank’s currency policy. In this context, there is large uncertainty in regard to the progress of realization of reforms and possible mistakes related to deregulation of the financial market.

According to Gaspuitis, economic perspectives in Nordic States remain varied. The outlook for Sweden’s 3% GDP growth remains unchanged. Economic growth is maintained by strong conditions of international economy. Nevertheless, they have yet to significantly speed up success of industrial output. Exports of goods and industrial output had grown in the first half of 2015. In spite of the decline in trade balance surplus, Sweden’s surplus remains large, mostly because of capital revenue. Rapid rise of residents’ income influences economic contribution in multiple ways. Private consumption grows relatively well. Consumption per capita, however, grows slower. Employment rise progresses at a healthy pace, partially because of steady rise in the number of residents. Unemployment, on the other hand, declines slowly.

Denmark’s recovery is convincing. Norway’s economic recovery, however, is delayed by consequences of oil price drop. Finland has had major structural problems for some time. After a three-year drop, this year will have zero growth. The region’s general growth perspectives are considered positive.


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